It can seem like a daunting task to invest in stocks. There are so many technical jargons thrown around that it feels like you’re not really able to understand anything. This article will help you make sense of the jargon, and guide you through how to make smart investments like ipo investing as well as what they mean when they use certain terms.
After-market trading refers to the period when financial markets are open after the end of the regular trading day. It can happen on any day, but most often happens on Fridays.
In addition to allowing investors to buy and sell stocks that they don’t already own, after-market trading also allows traders who bought or sold shares during regular trading hours to make adjustments before finalizing their positions.
The bid-ask spread is the difference between the highest price that a buyer is willing to pay for a security and the lowest price that a seller will accept for it. It’s also referred to as the “markup” or “markdown” and simply refers to how much money you can make from buying or selling something.
For example, let’s say you want to sell an investment at $100 with no buyers at that price. If someone offered you $101, then your markup would be 1%. This means you’d make 1% on your investment just because there were no other buyers interested in what you were selling at $100 and someone did offer more money than that amount (or asked less).
Book building is the process of selling shares in an IPO to institutional investors. It is done by a company and its underwriter, who are also known as lead managing underwriters.
This process takes place before the actual public offering opens up for non-institutional investors to buy shares at market price. The company will first determine how many shares it wants to sell and then decide whether it should be an oversubscribed or undersubscribed IPO, depending on its needs.
The book runner is the lead underwriter and is responsible for pricing and marketing the securities. In other words, it’s the bank or brokerage firm that takes on this responsibility. The book runner can also be known as “lead manager” or “lead underwriter.”
Usually, it’s only one of these firms that creates a syndicate for an IPO to ensure there are enough buyers for everyone involved in the deal.
The green shoe option is a type of over-allotment option that a company can use to increase the size of its initial public offering. The green shoe is an example of a right given by an underwriter (such as Goldman Sachs) to sell more stock than originally planned in an IPO.
If the company’s shares are trading above their IPO price on their first day of trading, then it may exercise this option. The underwriter will then buy more shares from investors at a higher price and resell them on behalf of the company at its artificially inflated price.
“Members who don’t confirm their indications of interest are not eligible to receive an allocation of shares” according to SoFi expertise.
As you can see, there are many technical terms related to investing in IPOs. However, here you have tried your best to know this jargon clearly in a non-technical way. Hopefully, now you will be able to understand these terms better and use them confidently when conversing with others about your investment plans.
Author: Zoya Maryam